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11 Jan 2018 5:32 PM | Anonymous

Are DIR Fees Putting Independent Pharmacies Out Of Business?

The rate of therapeutic drug use in the U.S. has steadily climbed over the years as more people fall ill and seek medical help. This increase should have resulted to a healthy economy among those in the pharmacy business, but what’s happening in real life is actually the opposite. Many independent pharmacies are struggling to make ends meet, and some even decide to close their doors since their losses are too great to recoup.


This is caused by a lot of factors, but one of the biggest culprits is direct and indirect remuneration or DIR fees. These started out as a legitimate charge levied by the Centers for Medicare and Medicaid Services (CMS). But, over time, they have evolved to describe arrangements between pharmacies, Medicare Part D plan providers, and pharmacy benefit managers (PBMs). Today, DIR fees are so steep that pharmacies — particularly independent ones — are struggling to pay them, with some barely breaking even and others even ending up in the red.



So where did DIR fees come from? As mentioned above, it was coined by CMS to make it easier for them to monitor the amount of rebates and other types of price adjustments that drug manufacturers place on their products. These adjustments need to be calculated since they can greatly impact the overall cost of medications under Medicare Part D, and the savings they can provide are passed from PBMs to CMS.


It’s important to note that DIR fees are charged retroactively. CMS requires PBMs and plan providers to submit DIR reports on a yearly basis. The agency then uses these reports in conjunction with Prescription Drug Event data to reconcile costs and see if they’re paying the right amounts to Medicare Part D plans.


A lot of people ask if DIR fees are legal. Well, in the case of CMS, the fees are legal since they’re intended to help the agency maximize its savings and reduce the overall cost of healthcare. The problem lies in the fact that plans and PBMs eventually used the term “DIR fees” to refer to the fees that they charge pharmacies.



Today, “DIR fees” can mean a wide range of things, depending on the type of charges that plans and PBMs want to levy. In some cases, they can refer to the amount that a pharmacy must pay to join the network of a plan or PBM and be considered a “preferred pharmacy”. They can also refer to payment reconciliation, i.e. settling the difference between the projected medication costs and the actual costs.


DIR fees can even refer to the reimbursement that’s given to pharmacies for meeting certain performance metrics as well as to the fees levied to pharmacies that don’t meet these metrics. Many plans and PBMs consider the performance of each pharmacy in terms of refill rates, preferred product rates, audit error rates, and other factors. If pharmacies fall short on one or more of these metrics, they’ll most likely find themselves receiving less than what had been promised to them.


The Positive Side of DIR Fees

Plans and PBMs defend their version of DIR fees, saying that these help lower healthcare costs. Payment reconciliation, for example, allows them to pay for the exact price of the drugs and nothing else, which means they can save money down the road and keep down the costs of Medicare Part D plans. This, in turn, gives people access to low-cost plans that would fit their budget.


They also point out that, since DIR fees are given retroactively, they require pharmacies, PBMs, and plan providers to do thorough auditing and ensure they’re submitting the right data. This helps them easily spot any fraudulent transactions and prevent these from happening in the first place.


The Negative Side Of DIR Fees

Unfortunately, despite these good intentions, DIR fees end up doing more harm than good. Pharmacies are assessed for these fees on a monthly, quarterly, or even annual basis, which means there’s a long stretch of time between the point of sale and the day they receive their assessment. This “lag time” makes it difficult for pharmacies to clearly evaluate how much reimbursement they should receive and/or calculate the exact amount they should pay to PBMs.


Of course, it’s important to note that many PBMs and plan providers abuse the concept of DIR fees. For instance, they set high estimated costs at the beginning of the year so they can charge high premiums. The costs are ultimately reconciled at the end of the year, but the companies are essentially getting an interest-free loan from the CMS.


Some even go a step further by tying payments to performance metrics then determining what these metrics are after the claims are paid. This is unfair since it prevents pharmacies from knowing exactly what quality measures they should be striving for. It also allows plan providers and PBMs to reduce the amount they would pay to pharmacies if the latter don’t meet the metrics.


Even if PBMs and plan providers don’t abuse their power, the fact remains that the retroactive nature of DIR fees make it difficult for pharmacists to map their future. Since they don’t know how much their revenue stream would be, they find it hard to make business plans and decide where they would take their venture in the coming months and years.



So what can independent pharmacies do to combat DIR fees? Well, the most obvious choice is to avoid signing up for a preferred network (or opting out if they have already joined one). However, this isn’t the ideal solution since it would increase the co-pays that their customers would have to pay and limit the target audience they can serve.


The best thing that pharmacists can do is to support bipartisan legislation that would get rid of retroactive DIR fees and help improve the transparency in Medicare Part D spending. If passed, H.R. 5951 and its companion legislation Senate Bill 3308 will prevent PBMs from unduly changing their reimbursements whenever they want. This, in turn, ensures that pharmacies know exactly how much they’ll earn at the point of sale.

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